Slimmer RMA won’t improve affordability

I’m not convinced that reforms to the RMA will lead to any improvement in housing affordability. Much like work expands to fill the time available, house size and features expand to fill the budget available.

When banks look at houses as the premier security for all lending, even if you have a solid business generating free cash flow, whatever cost reductions in house construction can be achieved are likely to be immediately consumed in the form of bigger kitchens, more media rooms and larger garages.

State houses were 60 square metres back in the day, the average house size is more than 200 square metres now, and there is a strong cultural preference in New Zealand for housing arrangements that don’t work in a city with the geography of Auckland – water everywhere gets in the way!

In The House of Debt, US research shows a marginal propensity to consume gains in housing value between 0.1 and 0.4! The surge in retail spending last year on the back of house price gains in Auckland isn’t surprising. How many people are being prudent are using higher house prices to reduce their debt and build actual wealth? Not many, if any.

92% of household net worth in New Zealand is tied up in home equity. No one can afford the capital losses that housing affordability policies would actually produce. Witness the fury over attempted changes at school zones – that’s nothing compared with how people will mobilise to protect their rents from choosing to purchase a Ponsonby villa in 1970 and never selling.

Many households also don’t have mortgages – if they sell at the peak and downsize then that’s a permanent reset of their lifetime consumption possibilities. Selling in Auckland and retiring elsewhere is one reason why it mightn’t be too big a deal that home ownership is slipping in Auckland. Maybe more young people are realising they might need to buy their retirement home in a cheaper provincial city first?